28E_2 - Horngren'S Financial And Managerial Accounting

Question

Question :The following data at July 31, 2018, are given for RCO: a. Depreciation, \(600. b. Prepaid rent expires, \)200. c. Interest expense accrued, \(700. d. Employee salaries owed for Monday through Thursday of a five-day workweek; weekly payroll, \)8,000. Unearned revenue earned, \(1,000. f. Office supplies used, \)150. Requirements 1. Journalize the adjusting entries needed on July 31, 2018. 2. Suppose the adjustments made in Requirement 1 were not made. Compute the overall overstatement or understatement of net income as a result of the omission of these adjustments

Step-by-Step Solution

Answer

Net income will be overstated by $7,050. 

Step-by-Step-Solution Step1: Explanation on Adjusting Entries

Adjustries entries are used to record the accrued revenues and expenses at the end of the period.

Step2: Calculation of Overstatement of Net Inocme

Overstatement is calculated as follows:$$\begin{gathered} \mathbf{Overstatement}\mathbf{=}\mathbf{Depreciation}+\mathbf{RentExpense}+\mathbf{InterestExpense}+\mathbf{SalariesExpense} \\ +\mathbf{SuppliesExpense}-\mathbf{RevenueEarned} \\ \mathbf{=}\mathbf{\$}\mathbf{600}+\mathbf{\$}\mathbf{200}+\mathbf{\$}\mathbf{700}+\mathbf{\$}\mathbf{6}\mathbf{,}\mathbf{400}+\mathbf{\$}\mathbf{150}-\mathbf{\$}\mathbf{1}\mathbf{,}\mathbf{000} \\ \mathbf{=}\mathbf{\$}\mathbf{7}\mathbf{,}\mathbf{050} \end{gathered}$$

Thus, overstatement equals $7,050. $$\begin{gathered} \mathbf{Overstatement}\mathbf{=}\mathbf{Depreciation}+\mathbf{RentExpense}+\mathbf{InterestExpense}+\mathbf{SalariesExpense} \\ +\mathbf{SuppliesExpense}-\mathbf{RevenueEarned} \\ \mathbf{=}\mathbf{\$}\mathbf{600}+\mathbf{\$}\mathbf{200}+\mathbf{\$}\mathbf{700}+\mathbf{\$}\mathbf{6}\mathbf{,}\mathbf{400}+\mathbf{\$}\mathbf{150}-\mathbf{\$}\mathbf{1}\mathbf{,}\mathbf{000} \\ \mathbf{=}\mathbf{\$}\mathbf{7}\mathbf{,}\mathbf{050} \end{gathered}$$